How to save money each month

It’s often difficult to motivate ourselves to save money - especially when what is left at the end of the month doesn't seem like it would stretch too much further.
happy family sitting on the porch smiling to camera

Though most of us want to save money, it’s sometimes difficult to know the best way to do so. Whether it's sticking to a budget, repaying your short-term loans more quickly or putting cash into a savings account each month, knowing where to begin can sometimes be overwhelming.

And it’s often difficult to motivate ourselves to save money - especially when what is left at the end of the month doesn't seem like it would stretch too much further. Nevertheless, if you want to improve your financial situation over time, you have to start somewhere.

So, if you’ve been wondering how to save money each month, or exactly where to save money, we’ve created a guide filled with some helpful ideas.

1. Set up a savings plan

If you’re contemplating how to save money, or perhaps how to save money fast, first you’ll need to set up a realistic savings plan.

Let’s face it, if you don’t have emergency savings in place, you could find yourself looking at potential debt. Having too much debt can put a significant strain not only on your finances but also on your personal well-being. Although there are lots of ways to get out of debt, having a savings plan in place is by far the most effective solution to leave your financial burden behind.

If you’ve been contemplating how to save money from your salary, coming up with a realistic budget should be your first port of call. You’ll need to make a note of your income as well as your outgoings to establish how much you’re going to be able to put aside each month.

According to Which?, a consumer champion in the UK, retired couples need an average of £18,000 a year for their household essentials such as food, heating, and housing. To afford the leisure activities as well as holidays, they’ll need about £26,000 a year. So if you don’t save money for retirement right now when you can, will you still be able to enjoy life without depending on anybody?

Collect some current info

Collect the most recent loan statements and credit card information. Verify their accuracy and determine the existing loan balances. If possible, pay off your debts aggressively while leaving a small cash reserve of £200 - £1,000 handy in your personal savings account. This money can be used in the place of an emergency loan at some point.

Start committed

Let's get off on the right foot. When beginning this plan, try to make necessary adjustments to your budget along the way to avoid overspending. This could force you to tap into your reserve and eventually slide back into debt.

2. Check your credit card interest rates

If you pay your credit card bill in full each month, you won’t pay interest on the amount you borrowed. However, interest is typically charged daily for cash withdrawals and can significantly add up over time, especially as the interest rate for cash withdrawals is usually higher than for one-off purchases.

If you find that you’re spending more than £50 per year on credit card interest, one way you could cut this down is to shift to a 0% balance transfer card. A 0% balance transfer card can help you pay off your existing credit by moving the balance from one card where you may be paying interest, to a new one at a 0% interest rate for a fixed period.

The savings you can make with an interest-free card could help you keep in control of your finances. But it’s important to remember that you must meet the monthly repayments, or you’ll lose the interest-free period.

3. Switch energy tariffs

If you’re wondering how to save money on energy bills, or how to save money on your electric bill, have you considered switching energy tariffs?

If you’ve not switched tariffs in the last year, you’re likely to be on your provider’s standard tariff. A standard tariff is a good option if you want flexibility and don’t want to be tied down to a contract, but the variable prices mean that you may be paying far more than you need to.

According to Ofgem, the cheapest tariff in summer 2021 was £1,053 per year, which is £212 cheaper than the typical energy price cap. With a variable tariff, your provider can alter the unit rates for gas and electricity anytime during the duration of your contract. This means that your monthly bill can rise, even if you use the same amount of energy.

Fixed-rate tariffs usually represent the best value for money as they cap the unit price of gas and electricity for the length of your contract, which can be anything from one to three years. If you haven’t already, try using a comparison website to help you shop around to find more affordable tariffs. With a more affordable tariff, you’ll be able to put more money towards your pot of savings.

4. Save on your car insurance

Another simple way to save money is by doing the following with your car insurance:

  1. Change policy. Often if you find a cheaper deal and you’ve not claimed on your current policy in the past, you can cancel and get the rest of the year refunded. This means you won’t earn this year’s no-claims bonus, but it could be worth it to help you save and avoid future price rises.

  2. Check for a cheaper deal. To ensure you find the cheapest price possible, shop around and get quotes from multiple comparison sites. Once you’ve found the cheapest quote, see if you can get cashback.

If your car insurance automatically renews, you may be able to cancel depending on your insurer’s terms and conditions (when you first purchase a new policy, you should have two weeks to change your mind and cancel – usually without paying a penalty).

5. Look into credit card cash-back

Paying off your credit card in full each month means you don’t pay interest, but when you use it to make a purchase, the retailer has to pay the card firm a transaction fee.

With a cashback card, you’ll earn a percentage of that spend back. The rate of cashback will vary depending on where you shop or how much you spend, and some purchases might not earn you back any cashback at all, but it can be a simple way to save money. These funds are paid monthly or annually as a credit on your card balance, but the maximum amount you can receive is usually capped.

6. Review your mortgage

Although it’s very easy to take out a mortgage and not think about interest rates fluctuating, you should see whether you can switch contracts to save some money. This might be possible if you have come to the end of your fixed-rate period.

Providers recommend that homeowners avoid paying more than 30% of their income on a mortgage to leave enough money for unexpected expenses. However, millions of homeowners end up stuck paying their lender’s standard variable rate, which averages 4.9% in the UK. Standard variable rate mortgages tend to be higher than the rates of other types of contracts. The rate you pay on an SVR mortgage will be determined by your lender, who may increase or decrease it at any time independent of the Bank of England Base Rate.

While not everyone can switch mortgages easily, it’s worth regularly checking for better deals and reviewing your mortgage when interest rates rise. For instance, in the summer of 2021, Halifax launched mortgages at 0.83% amid a flurry of rate cutting on loans worth up to 60% of home value.

Now, these are just a few ways in which you can save money each month. And, there are various other such as renting out a spare bedroom or looking into whether you can reduce the price of your phone contract.

Why should you save money each month?

There are many reasons as to why you should aim to save money each month, and here are just a few of them:

Save money for unforeseen expenses

Creating an emergency fund is key to ensuring financial security. With the money saved, you’ll be able to set aside a pot of money to use if unexpected situations (such as job loss, sudden accidents, or illness) arise. Having £500 to £1,500 saved in an emergency fund for an anticipated scenario may give you peace of mind when the time comes. When you’re always relying on the bank to lend you money to pay for the same, it can make the emergency even more pressing.

Although sometimes the savings might not be enough to cater for some of the emergencies - and that's normal. If you find yourself in such a situation and need a payday loan, are here to help.

Save money for your dream house

It’s certainly a great feeling to own a home, however, a large percentage of people are not able to save enough to buy a house outright. This means they’ll need to borrow a mortgage. If you’ve saved a large deposit, you stand a good chance of getting a better mortgage deal — because of your lower loan-to-value ratio. Some of the deals include better interest rates and cash-back offers.

Funding your children’s education

It’s only natural that every parent wants the best for their children — especially when it comes to succeeding in education. If your son or daughter is soon heading off to college or university, then you should start saving money ahead of the game.

higher education is becoming more expensive, so with the money you save, why not put some towards your child’s education fund? You’ll give your children the best opportunity to make headway on achieving their goals - without pulling on your purse strings.

There you have it. All you need now is to make the sacrifice to save money regularly and stick to your budget — it is surely the best way to get your financial freedom. Although it might take a bit of work and time, you will find it a worthwhile habit. We wish you the best of luck!

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